How to Master E-Commerce Pricing

Arthur Klebanoff is founder and CEO of RosettaBooks, an e-book publisher and owner of the Scott Meredith Literary Agency which, since it was founded in 1946, has handled 25,000 book deals. Arthur is a member of the Inc. Business Owners Council.

CEO of RosettaBooks

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One of the beauties of e-commerce is the wide range of pricing options. A sale price can last for an hour, a day or a month. Within the same line of items, prices can vary widely and change constantly. There is no doubt that pricing, particularly when accompanied by promotion, has multiplier effects on e-tailer unit sales.

The unknown: The specific effects of all the different combinations you can try. But you can’t experience the profit if you don’t step up to the plate. Here's how to start experimenting:

1. Suggesting your price

The big-box e-tailer will want to set the lowest possible price to the consumer, consistent with making some money for itself. This starts with the digital list price. As a smaller company, you will want to suggest a list price somewhat lower than the pricing of comparable items by the leaders in the field.

2. Terms of sale

The next issue is terms of sale-; what does the e-tailer pay the vendor per sale? Giants-;the big companies-;usually try to benefit themselves at least in the short term with terms of sale. E-tailers want the maximum amount of flexibility in discounting using their internal algorithm pricing software. Smaller companies are well advised to give e-tailers the discounting flexibility they need-; and make a point of doing so.

3. The critical issues

The final and perhaps most crucial issue is sale pricing tied to merchandising. E-tailers offer a wide variety of programs, which on their face seem to involve extremely steep discounts. Large established players often refuse to participate since the pricing structure violates some self-held idea of pricing perceptions. This leaves the field to innovative smaller companies, which are well advised to participate in any and all site promotions and evaluate after the fact whether the gain in sales justifies the temporary slash in price.

Agreed to the wholesale model of pricing with discounting encouraged (rather than “agency” pricing followed by the large publishers, which fixes the price and bars the e-tailer from discounting).

Participated in every available site promotion, which for Kindle has meant the Daily Deal (24-hour sale, sometimes for $.99), Kindle Singles (short original pieces for $1.99), 30-day promotions for $.99, $1.99, $2.99 and $3.99 list prices, and special site promotions (18 Kurt Vonnegut titles for $3.99 each for 30 days).

The results suggest loosely that a two-thirds price cut that requires three times the unit sale to break even often has unit sales results of ten, 20, 30 and 50 times.

Some promotions break even or fail to earn back the price inducement. But by “just saying yes,” RosettaBooks has accelerated its revenue growth dramatically and improved its relationship with both e-tailers and authors and agents. You can too.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.